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The new era of digitisation in banking?

Digitalisation has impacted almost every global sector, Insurance, Government and Healthcare alike. The financial services sector, however remains somewhat resistant to welcome this change.

Some financial organisations, with old legacy systems and highly detailed manual processes, are yet to be truly hit by revolution. That said, some organisations are ahead of the curve and are using new IT technologies to bridge the traditional and digital world.

HSBC, one of the world’s largest banking and financial services organisations, is reported to have spent US$2.3b on digital platforms, AI and new technology to reach tech-savvy customers. This includes US$200 million globally for investment in FinTech and enterprise start-ups, and already have some successful partnerships such as that with WeChat.

None of these new FinTech start-ups are consumer banks in the full-service sense of taking deposits. Instead, they are focused on transforming customer applications as well as the back-office economics of underwriting and the experience of consumer borrowing – with hope to make more loans for example available at a lower cost for millions.

The new FinTech era is focused on signals about behaviour – picked up by sophisticated software, such as AI and blockchain that can scan thousands of pieces of data about online and offline lives, and as a result, are creating new models of lending. In essence, the banking system is returning to the fundamental of ‘know the customer’ by capturing and analysing the data.

Back office systems are critical

According to data from the British Bankers Association, consumers in the UK are turning to mobile banking apps to manage their finances, as evidenced by an 84% rise in the number of in-app transactions over the past three years. Indeed, as mobile banking increases customer traffic, having an efficient, scalable back-end system becomes business critical.

Over the long term, tech will undoubtedly play a role in the evolution of banking. However, modernising the infrastructure backbone – that is, the core banking systems which handle the backbone of a bank’s data activities, is arguably the most crucial step banks will need to take.

Investments in cloud computing, blockchain and Robotic Process Automation (RPA) should also take greater priority in the new world. These identified investments offer opportunities for cost savings in the back office, while at the same time putting banks in a better position to compete with FinTechs.

What does the future hold?

According to research by consultants McKinsey, digitisation of investment banks could increase the struggling sector’s profitability by 20 to 30 per cent over the next three years. Among all of the technologies on the table, RPA and cloud computing may have the most significant potential in the near term.

Robotic Process Automation (RPA) is the application of technology that allows employees in a company to configure computer software – or a “robot” – to capture and interpret existing applications for processing a transaction, manipulating data, triggering responses and communicating with other digital systems.

These applications transfer information from one system to another, automating processes previously handled by humans. This can include customer on boarding and payments, through to fraud prevention and compliance reporting.

Cloud computing, whilst most of the UK banks are moving to the cloud, which offers the potential to shrink relevant infrastructure costs by 30% or more, global leaders like HSBC have already reported that 10% to 40% of their servers and operating systems have moved to the cloud, and many are targeting up to 80% by 2020.

What is the case for cloud computing? This can vary based on whether banks are already outsourcing IT, data capture, data conversion services, and whether they plan to use a public, private or hybrid cloud. Another consideration could be if they are using specialist external companies with the expertise and consultancy services to support the transition.

Concluding Thoughts

It is clear that financial services organisations must focus on two key aspects to fully take on digitalisation: firstly, they must create a user-friendly customer platform or take advantage of existing ones and secondly, financial services must transform their back-office processes.

Behind the scenes, digitisation leads to lower costs, greater productivity and agility, thanks to cloud computing, automation, mobility as well as artificial intelligence.

Working in partnership with leading authorities on data capture and conversion, The ORS Group advise their financial sector customers to look at RPA solutions to automate many mundane, labour-intensive, repetitive and time-consuming activities to boost capabilities and save expenditure.

The ORS Group believe that a focus on technology and a continued investment in IT is paramount to mitigate the risk of being disrupted by new entrants and FinTech players. One thing is for sure, the financial services sector has reached an age where digitalisation is essential for their survival and future success.